Relevant Thai Real Estate Law — issues and answers

Monthly Archives: August 2016

Since we published our article, “Is your house or condo an illegal hotel” on 30 April 2016 there have been several media reports on the same subject. Unfortunately, not all of the comments quoted in the reports were legally accurate. And we have received several inquiries regarding the reports. Accordingly, we thought we would take the opportunity to provide a short legal “fact checking” of the following comments quoted in the reports that seemed to have peeked the greatest interest:

1.“[Renting one’s condo] is a personal arrangement between the person renting out the condo and the person renting it – it does not concern the Employment Department.”

HALF TRUE

Section 5 of the Alien Workers Act defines “work” as follows:

“Work by using manpower or knowledge, whether those who perform the work want wage or any other benefits in return or not.”

Setting aside the circularity of the definition, any foreigner within Thailand engaging in any activity that meets that definition would need work permit. In our opinion, actively renting out your condo or villa on a daily or weekly basis could be considered a service. And using your knowledge or manpower to do so meets the Section 5 definition.

However, if you do so from outside of Thailand you do not need work permit.

2. “In actual fact, according to Thai Law, foreigners allowed to purchase under foreign quota is [sic] only allowed for personal dwelling and not for business or income.”

FALSE, BUT…

It is true that the Condominium Act restricts the percentage of foreign ownership of a condominium, but there is nothing in the Condominium Act that specifically restricts a foreigner’s use of their condominium unit.

However, if the registration of the condominium juristic person occurred after July of 2008 then commercial or business activities by anyone, foreign or Thai, are prohibited in any part of the condominium building that has not been officially reserved for such activities. In our opinion, short-term rentals constitute commercial/business activity. Any violation in this regard is subject to a fine of THB 50,000 plus an additional fine of THB 5,000 per day of the violation.

3.“Rentals can be done from 30 days up and not less.”

HALF TRUE

The Hotel Act restricts rentals of less than 30 days without a license. But there is an exception to this for properties with four bedrooms or less and where the income earned from doing so is not the operator’s primary source of income, as we explain here.

4.“If you are a Thai company you need not have a work permit as you have Thai directors.”

FALSE

Neither the Civil and Commercial Code nor the Foreign Business Act require a Thai company to have a Thai director.

Furthermore, if you are a foreigner, and the Thai company in which you are a shareholder or director is doing any business activity, and you are acting on behalf of the company for its business – you need a work permit (full stop)

5. “It is inacceptable [sic] to operate an illegal hotel. The penalty for this is up to one year in jail or a fine of up to THB 20,000, or both.”

TRUE, BUT

Correct, but there is also an applicable fine of up to THB 10,000 per day of the illegal operation, as we explain here.

6.“If a property is registered with the Land Department as a condo, then it cannot be registered as a hotel.”

FALSE

The Condominium Act regulates a type of real estate ownership, but not activities or businesses.

The Hotel Act regulates what it defines as the type of activity that constitutes hotel business.

As long as:

a registered condominium building complies with the requirements of the Hotel Act (which also requires compliance with the Building Control Act’s requirements regarding hotels);

all or part of the condominium is officially designated to be used for commercial purposes; and

all of the owners of the condominium consent obtaining the hotel license, then

a condominium can, indeed, obtain a hotel license. And in fact, there are many such cases of registered condominiums for which hotel licenses have been obtained, including in Phuket.

Generally this is planned and processed when the development is set up. But it is also possible to change an pre-existing apartment building into a legally registered condominium and, therefore, a legal hotel as well, as we explain here.

7. “To make them all legal can take time and some of them simply cannot be registered as a hotel simply because structurally they are not hotels.”

TRUE

As the Hotel Act stands at the moment, most illegal “hotels” cannot become legal, largely because they cannot comply with the requirements under the Building Control Act for legal hotels. And for those currently illegal hotels that could comply, it would require a significant amount to time for them to obtain legal status.

However, it should be noted that operators who are providing rentals of less than 5 bedrooms for less than 30 days AND only for “additional income”, could comply with the Hotel Act by simply reporting their activity to the relevant local authorities.

8.“The Hotel Act needs to be updated to allow condominiums that do wish to obtain a hotel license and villa estates or properties a clearer pathway, as there are a many who are willing to obtain the necessary documentation.”

and

“A hotel business involves many laws, so solving this issue is not easy. The Ministry of Interior is working on this issue. I know the ministry is considering a proposal to allow other types of building to operate as hotel, which is now being considered by their policy committee.”

WE AGREE

This could be done without the need to amend the Hotel Act itself. As we mention above, there is already an exception to the definition of a “hotel” under the Hotel Act pursuant to a Ministerial Regulation under the Hotel Act which excludes operators with less than 5 bedrooms (and less than 21 guests at time) who are only doing such for “additional income”, from the definition of “hotel” operators.

We suggest that similar could be done for the many currently illegal hotels in Thailand by carving out one or more categories of exceptions to accommodations that would require a hotel license. Such additional categories of operation could perhaps require a lower grade license with much less onerous requirements and, of course, a fee payable to the Thai government. We believe the majority of such operators would be pleased to comply with such reasonable requirements and Thailand would not only gain direct fee income but benefit its tourism industry as well.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and affiliated offices in 45 other countries. Visit them at: duensingkippen.com